Total to raise $15 billion in China for Russian projects

23.03.2015

French oil and gas producer Total is looking for $15 billion in investment from China to pay for expansion in Russia, the company’s CEO Patrick Pouyanne said. This could be the largest private corporate deal involving Chinese banks.

Total wants to expand the financing of the $27 billion dollar Yamal LNG project in Russia’s Siberia, said Pouyanne in an interview with the WSJ. The company says it’s possible the funding will be in either euro or yuan.

“You have a strong willingness to build the project financing [from the Chinese financial institutions – Ed.],” he said. “It’s not an easy task, to be clear. We would have preferred to do it with dollars.”

The attraction of dollar investment is complicated by the sanctions the US imposed against Russia in order to hamper its access to the global financial markets.

Total plans to close the deal by the middle of 2015, but Pouyanne didn’t mention which Chinese banks may be involved. The Yamal LNG project is being financed by Total, Russia’s Novatek and China National Petroleum Corp. Novatek has a 60 percent share in the project, while France's Total and China's CNPC have 20 percent each.

This $15 billion financing would be the largest private corporate deal Chinese banks have ever been involved in. Currently, the biggest deal is a $12 billion syndicated loan to Daimler AG agreed in 2013, in which two of the 34 banks were Chinese.

Total expects Russia to become the most important region for oil and gas production by 2020 with an output of around 400,000 barrels per day.

At the same time volatility in oil prices will continue through 2015 as supply exceeds demand due to the rise of US production, according to Pouyanne.

“I think the price will not stabilize,” he said. “The idea that you will stabilize something is wrong. Volatility is in the commodity business.”

Total considers a period of price volatility a good time for reducing costs, as there is little prospect for big oil deals for the time being, Pouyanne said.

“Our anticipation is that the increase of supply will remain above the increase of demand in 2015,” he said. “For me, I see this period as an opportunity to clean up the cost base of our company.”

Meanwhile, Total’s project to explore the vast Bazhenov shale reserves with Russian oil giant Lukoil is under question, as the European Union hasn’t made any concessions by loosening the sanctions that impede the project’s implementation.

The Yamal LNG project involves the construction of an LNG plant with a capacity of 16.5 million tons; the launch of the first stage is scheduled for 2017.

In October 2014 Novatek’s key owner Gennady Timchenko said the company was in talks with Chinese banks about getting over $10 billion in investment for Yamal LNG.